Congress Seeks To Score On Taxing Sports Leagues

January 30, 2014       Paul Clolery      

Just days before Super Bowl XLVIII is played in the swamps of New Jersey, a senator from Maine has signed on to proposed federal legislation that would strip sports associations, such as the National Football League (NFL), of their nonprofit status.

Sen. Angus King (I-Maine) has signed on to the PRO Sports Act, S. 1524, authored by Sen. Tom Coburn (R-Okla.). The law would amend the federal Tax Code to prohibit professional sports organizations with annual revenue of more than $10 million from receiving the 501(c)(6) tax-exempt status as industry trade associations and public interest groups.

Over in the U.S. House of Representatives, Rep. Jason Chaffetz (R-Utah) has introduced H.R. 3965, the Properly Reducing Overexemptions (PRO) for Sports Act. It is identical to the Coburn bill.

“My hope is that H.R. 3965 will become part of a comprehensive tax reform bill that would lower rates and broaden the base,” said Chaffetz. “I am not looking for additional tax dollars for the federal government. Closing this loophole should be combined with closing several other loopholes in order to lower tax rates in a revenue-neutral manner.”

In announcing support for the senate bill, King wrote that each of these leagues “exists to promote its specific brand and business. Arcane technicalities have allowed these leagues to rough the taxpayer.”

Coburn said when introducing the bill this past September, “Tax earmarks are essentially tax increases for everyone who doesn’t receive the benefit. In this case, working Americans are paying artificially high rates in order to subsidize special breaks for sports leagues. This is hardly fair.”

He explained the bill would require major professional sports leagues to be prohibited from qualifying as nonprofit organizations under the tax code. Most likely to be impacted along with the NFL are the PGA Tour, National Hockey League, the Ladies Professional Golf Association, the National Hot Rod Association, ATP Tour, WTA Tour, U.S. Tennis Association and the Professional Rodeo Cowboys Association, according to Aaron Fobes, a spokesman for Coburn.

The PRO Sports Act will not impact leagues’ 501(c)(3) charitable organizations, according to Fobes. For example, it would not impact the United States Olympic Committee, which has 501(c)(3) status.

The Joint Committee on Taxation estimates the tax break is worth $10 million annually and $109 million over a decade to major sports leagues. The National Basketball Association does not have a tax exemption. Major League Baseball renounced its tax exemption in 2007. The National Hockey League is a 501(c)(6).

The NFL’s most recently filed federal Form 990 shows $255.3 million in revenue and expenses of total of $332.9 million. Most of the revenue is dues from the league’s 32 teams. The difference between revenue and costs is directly related to a construction project. NFL Commissioner Roger Goodell was paid $29.4 million, according to the Form 990.

A spokesman for the Internal Revenue Service declined to comment, citing rules regarding speaking about a specific entity. The description of a 501(c)(6) is “business leagues, chambers of commerce, real-estate boards, boards of trade, or professional football leagues (whether or not administering a pension fund for football players), not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual.”

Representatives of the Giants and Jets, both of the professional football teams that play home games at MetLife Stadium where the Super Bowl is being held, referred questions to the league office. The league did not return messages seeking comments.

Chris Vest, CAE, director, public policy, for ASAE: The Center for Association Leadership in Washington, D.C., said the organization is carefully watching the legislation, although it has not yet taken an official stand.

Jim Clarke, CAE, senior vice president, public policy, at ASAE said the legislation clearly focuses on the sports league but ASAE leaders worry about the unintended consequence of such specific laws.